Question

You are the Controller of the Big Bucks Corporation. Big Bucks needs to obtain a loan in order to finance the remodeling of the production facilities. They are at a competitive disadvantage with the current facilities. A loan agreement that Big Bucks currently has with Dollar Bank requires them to maintain a certain profit margin and current ratio. This year’s income, profit margin, and current ratio are not favorable. Big Bucks has been using the LIFO method to value its inventory. Chris Smart, the CEO of Big Bucks, has asked you to change the inventory valuation method from LIFO to FIFO which will cause income and the related ratios to increase. With this change Big Bucks can meet the requirements of the loan agreement and qualify for the additional loan.  

1. What is the main ethical issue? (State this as an ethical dilemma.)  

2. What stakeholders may be benefited or harmed?

3. What are my specific responsibilities and obligations?

4. Identify the alternatives? (Clearly state)

Answer 1

Ans 1- As per the Question only change of Accounting policy is part accounting practice its not affect the ethical issue of the company.

Ans-2 Due to change of valuation method of Inventory from LIFO to FIFO company will get the Loan amount which is beneficial for the company for remodeling of the product facilities. and If company will be benefited then stakeholders also benefited.

Ans 3-As per the Statement Main responsibilities and obligations are to achieve the profit margin because of due to change of method of accounting of inventory only one year profit increase next they also have same problem to achieve profit margin and maintenance of current of ratio also one big issue .

Ans-4 otherwise company will go for another alternative, they focus on current production model try solve the issue with some small change rather than remodeling of production plan. because of due to this loan company will get some extra expense of Interest expenses and this expenses are affect the production contribution.